The Canadian Dollar (CAD) is staying strong against the US Dollar (USD). This stability is due to a consistent US/Canada spread and limited changes in commodities and risk appetite. The expected balance rate for USD/CAD is 1.3625. For the CAD to bridge this gap, we may need positive news, like unexpected growth in jobs. Scotia forecasts that Canada will add 20,000 jobs in July. This upbeat outlook could boost the CAD, especially after June’s impressive increase of 83,000 jobs. Right now, there is a downward trend for USD/CAD, and if it breaks through certain support levels, it could improve the CAD’s position. However, there’s some resistance around 1.3750/75.

Market Volatility and Influences

The markets could see increased volatility due to the Canadian Labour Force Survey, which suggests job creation might slow down, and the unemployment rate could rise. Meanwhile, the Bank of England is adjusting its rates in response to ongoing inflation concerns, impacting the overall market. As the USD shows slight recovery, pairs like EUR/USD and GBP/USD are adjusting, reflecting changes in economic conditions and policies. Gold prices are also facing challenges due to market circumstances and a strong USD. In light of these market shifts, it’s important to conduct thorough research and be aware of potential financial risks when trading. Today, we need to respond to the newly released Canadian Labour Force Survey for July, which showed an impressive gain of 45,000 jobs—more than double the expected 20,000—and maintained an unemployment rate of 6.2%. This surprise has caused the USD/CAD pair to drop sharply from around 1.37.

Trading Strategy Insights

For derivative traders, the implied volatility will likely decrease now that the job report is out. We might consider selling USD/CAD call options near the resistance level of 1.3750, taking advantage of the declining volatility and the strengthened Canadian dollar. This strategy works best if the pair trades sideways or continues to decline in the next few weeks. This strength of the Canadian dollar comes as US jobs data shows moderate growth, with non-farm payrolls around 185,000 last week, indicating a possible cooling in the US economy. Additionally, WTI crude oil prices are recovering, recently rising above $85 per barrel, benefiting the CAD. These aspects support a further downturn in the USD/CAD pair. Looking back to late 2024, we saw strong Canadian data surprises paired with steady oil prices, which led to a downtrend in USD/CAD for several weeks. History hints that when these factors align, the USD/CAD pair tends to decline. Therefore, we should be cautious about opposing this emerging trend. With the valuation gap closing in on the 1.3625 equilibrium estimate, any rallies in USD/CAD could present selling opportunities. The upcoming inflation data will be crucial, influencing the Bank of Canada’s decisions for its September interest rate. A more aggressive stance from the central bank could push the pair through important support levels. Create your live VT Markets account and start trading now.

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